"The gold standard had its advantages, no doubt." -- Niall Ferguson

"The gold standard had its advantages, no doubt."

Niall Ferguson is a brand name scholar both for quality and well justified celebrity.   He's bi-coastal and bi-oceanic -- with appointments at Harvard, the Hoover Institution and Oxford.   He writes books people buy and articles people read.  He has a European outlook on American problems and an American outlook on European problems.

Niall

From PBS's Ascent of Money


In his latest Newsweek column, "The Fed's Critics Are Wrong," Ferguson writes: "In normal times it would be legitimate to worry about the consequences of money printing and outsize debts. But history tells us these are anything but normal times."  Ferguson understands history and economics much better than most commentators.  In his thoughtful and erudite The Ascent of Money: A Financial History of the World, Penguin Books, 2008, p. 59 (also an International Emmy award winning BBC documentary):

"In 1924 John Maynard Keynes famously dismissed the gold standard as a 'barbarous relic'.  But the liberation of bank-created money from a precious metal anchor happened slowly.  The gold standard had its advantages, no doubt.  Exchange rate stability made for predictable pricing in trade and reduced transaction costs, while the long-run stability of prices acted as an anchor for inflation expectations.   Being on gold may also have reduced the costs of borrowing by committing governments to pursue prudent fiscal and monetary policies.  The difficulty of pegging currencies to a single commodity based standard, or indeed to one another, is that policymakers are then forced to choose between free capital movements and an independent national monetary policy.  They cannot have both.  A currency peg can mean higher volatility in short-term interest rates, as the central bank seeks to keep the price of its money steady in terms of the peg.  It can mean deflation, if the supply of the peg is constrained (as the supply of gold was relative to the demand for it in the 1870s and 1880s).  And it can transmit financial crises (as happened throughout the restored gold standard after 1929).  By contrast, a system of money based primarily on bank deposits and floating exchange rates is freed from these constraints.  The gold standard was a long time dying, but there were few mourners when the last meaningful vestige of it was removed on 15 August, 1971, the day that President Nixon closed the so-called gold 'window' through which, under certain restricted circumstances, dollars could still be exchanged for gold.  From that day onward, the centuries-old link between money and precious metals was broken." 

Of course, some of these insights echo, in important ways, those of economics Nobel laureate Robert Mundell.  According to a September, 2006 article in the IMF's Finance and Development magazine entitled "Ahead of His Time," by Laura Wallace,

Mundell considers his major breakthrough to be his 1960 journal article that introduced a model of an economy dominated by two markets: one for goods and services and one for foreign exchange. Before that, he says, there weren't any models of what today we call international macroeconomics. Many spin-offs followed, including the Mundell-Fleming framework (also named after his IMF colleague, Marcus Fleming, a British citizen, who had been working along similar lines independently). The model shows that under a floating rate and perfect capital mobility, monetary policy becomes powerful, and fiscal policy powerless, in affecting output, whereas the opposite is true when the exchange rate is fixed. It also shows that if a country has a fixed exchange rate, it cannot in the long run have an independent monetary policy, and that if it has an independent monetary policy, it cannot have fixed exchange rates. This result holds whether or not there is capital mobility. Indeed, he considers that the "impossible trinity," which implies that a country can have a fixed exchange rate and an independent monetary policy if it also has capital controls, is erroneous. And making matters worse, in his view, the trinity's "irrelevant focus on capital movements has been the spurious raison d'etre of the shift in the 1970s to flexible exchange rates."

And also, one wishes to see more scholars follow Prof. Ben Bernanke in teasing out the critical distinction between the classical gold standard and its "grotesque caricature" (in the words of Rueff), the gold-exchange standard: the true culprit behind the crisis of 1929.

Vinaora Nivo SliderVinaora Nivo SliderVinaora Nivo SliderVinaora Nivo Slider

The Most Important Thing Holding Up the US Dollar

by Ron Paul

Today’s economic conditions reflect a fiat monetary system held together by many tricks and luck over the past 40 years. The world has been awash in paper money since removal of the last vestige of the gold standard by Richard Nixon when he buried the Bretton Woods agreement — the gold exchange standard — on August 15, 1971.

Since then we’ve been on a worldwide paper dollar standard. Quite possibly we are seeing the beginning of the end of that system. If so, tough times are ahead for the United States and the world economy.

Piketty’s Gold?

April 21, 2014

In terms of public policy, though, we favor honest money. It works out better for more people. And there is a moral dimension to the question of honest money. This was a matter that was understood — and keenly felt — by the Founders of America, who almost to a man (Benjamin Franklin, a printer of paper notes, was a holdout), cringed with humiliation at the thought of fiat paper money. They’d tried it in the revolution, and it had been the one embarrassment of the struggle. They eventually gave us a Constitution that they hoped would bar us from ever making the same mistake.

Read More

 


The Rueffian SynthesisJohn D. Mueller

Publisher's Note: Originally released in June/July of 1991, this detailed report discusses Jacques Rueff's economic theories and applies them to modern economic events.

By John D. Mueller

Rueff Restates the Quantity Theory of Money

... Rueff argued that the real problem with the monetarists is not that they focus too much, but rather too little on the supply of money; namely, they assign too little importance to the concrete mechanisms by which money is actually created. Most monetarists adopt the convention that the government can control the nominal supply of money, while demanders of money control its value. Rueff pointed out that under a properly functioning monetary system, even the nominal supply of money is determined by people’s demand for it.

Read More

Excerpts From:


by Lewis E. Lehrman

"The economist defines money as a medium of exchange. It is the token we supply in order to effect payments for the goods we demand. Money is especially a standard like a yardstick – a unit of measure by which we value and price economic goods. Money units express prices which are the vital information necessary for efficient exchange. Money is surely a store of value."

Learn More

 

Laksmi, The Goddess of Prosperity

Ralph J. Benko  |  Apr 24, 2014
Indian culture long has held a high appreciation for gold.  The Vedic faith records four historical ages, the highest being the Satya Yuga.  Per Wikipedia, "when humanity is governed by gods, and every manifestation or work is close to the purest ideal and humanity will allow intrinsic goodness to rule supreme.

So Long, So Slow: IMF Not So Optimistic on World Recovery

Kathleen Packard  |  Apr 23, 2014
“Here’s the short story: The U.S. has exited from financial crisis: Asia and Europe have not,” wrote Rana Foroohar in TIME at the beginning of this year. “China, the second largest economy in the world, is pretty much where the U.S. was five years ago – deeply in debt...Japan, where...
VIEW BLOGS
Apr 22, 2014
World Press
George Melloan

In Going Long, the Fed Is Short-Sighted

Stock and bond traders spent most of last year in a state of high anxiety over what would happen when...
VIEW WORLD NEWS
Nov 30, 1999
Key Monetary Writings
John D. Mueller

Nobel Prize Winner Robert A. Mundell: An Appreciation

In October, the Royal Swedish Academy of Sciences awarded the Nobel Prize in Economics to Robert A. Mundell.
VIEW KEY MONETARY WRITINGS
 
Prosperity Through Gold
Please sign me up to receive free, noncommercial, news and analysis.
Name:
Email:
You can easily and safely unsubscribe anytime. Privacy Policy

Kathleen M. Packard, Publisher
Ralph J. Benko, Editor

The Gold Standard Now
Board of Advisors:


Senior Advisors

Sean Fieler, James Grant,
Steve Hanke, John D. Mueller,
Lawrence Parks, Judy Shelton,
Lawrence H. White

Senior European Advisor
Paul Fabra

Advisors
Jeffrey Bell, Ralph J. Benko,
Andresen Blom, Frank Cannon,
Rich Danker, Brian Domitrovic,
Charles Kadlec, Christopher K. Potter,
John Tamny and Frank Trotta

In Memoriam
Professor Jacques Rueff
(1896-1978)

Now Available on Amazon and from The Lehrman Institute

Gold Standard 3-Pack

Three Gold Standard Titles for One Low Price. Only from The Lehrman Institute Store.

Buy from
The Lehrman Institute

Breaking News